FOREX-Dollar comes off three-year high but will resume rally

NEW YORK, July 8 (Reuters) - The U.S. dollar edged off
three-year highs against major currencies on Monday but looked
poised to resume gains after last week's strong U.S. jobs data
boosted expectations the Federal Reserve will scale back
stimulus soon.

Expectations the U.S. economic recovery is leading the rest
of the world and that the Fed will reduce its bond-buying have
sparked a nearly 5 percent rally in the dollar since mid-June,
prompting some traders to say the move had been too fast.

Focus is shifting to Wednesday's release of the minutes from
the Fed's June policy meeting. A Reuters poll of firms that deal
directly with the Fed now sees the reduction beginning in
September.

In contrast, the European Central Bank and the Bank of
England were more likely to ease monetary policy, while the Bank
of Japan was expected to continue with aggressive stimulus,
which will keep the euro, sterling and yen weak.

"The minutes from the June 18-19 FOMC meeting will likely be
hawkish, as they have been for some time, relative to the Fed
statements," said Stephen Jen, a managing partner at
London-based hedge fund SLJ Macro Partners.

"Our conviction is strong that the dollar will embark on a
structural ascent, against a broad range of currencies."

The dollar index, which measures the value of the
greenback versus a basket of six major currencies, fell 0.2
percent at 84.267, having earlier hit 84.588, its strongest
since July 2010.

The index had rallied 1.5 percent on Friday after data
showed U.S. employers added 195,000 new jobs to their payrolls
in June, while job increases for the previous two months were
revised higher.

The euro rose 0.3 percent to $1.2866, but not far
from a seven-week trough of $1.2805 plumbed on Friday.

German data showed exports in May fell the most since late
2009, suggesting Europe's largest economy is struggling to
regain traction, although a rise in imports pointed to robust
domestic demand.

The euro's gains accelerated after European Central Bank
President Mario Draghi, in comments to the European Parliament's
Economic and Monetary Affairs committee, that "euro area
economic activity should stabilize and recover over the course
of the year, although at a subdued pace."

Analysts said the euro would find it tough to make any
significant gains against the dollar as Draghi pledged to keep
interest rates low for an extended period.

The divergence between the United States and other major
economies is clear in bond markets, with 10-year Treasury yields
spiking 23 basis points on Friday to around 2.75
percent, highs last seen in August 2011. The spread between
Treasury and bund yields gapped to the widest since
2006.

"The dollar's strength over the course of last week was
especially swift. I think the speed was overdone and so this
setback is normal," said Ulrich Leuchtmann, head of FX research
at Commerzbank. "Now markets are positioned to take profits from
these moves, but this is simply a pause."

The single currency was also helped by news that Greece
looks likely to reach a deal with foreign lenders on its latest
bailout review and by an improved political situation in
Portugal.

"It looks like we will have a clearer diversion, with growth
gaining momentum in the U.S. and the euro zone bumping along the
bottom," said Niels Christensen, currency strategist at Nordea.

"I expect interest rate differentials to continue to move in
favour of the dollar and to pull euro/dollar lower."

The dollar was last down 0.3 percent at 100.91
yen, having earlier hit a 1 1/2-month peak of 101.53 yen.